Netflix’s real advantage is that it’s a tech company first

Even as it goes Hollywood, Netflix is staying true to its roots.

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Netflix hasn't been coy about its plans to take over Hollywood. The company has already said it could spend up to $8 billion on content this year alone. But, for all the awards House of Cards and Icarus rack up, one of the reasons Netflix has tasted success so rapidly is its streaming technology. That's an area it has been perfecting in-house since 2010, when it became more than a simple mail-order DVD rental shop.

For Netflix, the tech is just as important as the storytelling. Regardless of how many shows or movies Netflix produces, it needs to ensure that its 118 million subscribers can watch them without issue -- no matter where they are in the world, which smartphone they own or how fast their internet is. Netflix even recently re-encoded its entire catalog (said to be around 6,000 titles) to produce the best possible picture using the smallest amount of bandwidth, which was made possible by an AI technology it developed called Dynamic Optimizer.

During a tour of its Hollywood and Los Gatos headquarters, Netflix said that a typical episode of a show like Jessica Jones, which is roughly an hour long and is captured in 6K resolution, weighs in at 293GB of raw, unedited footage. That amounts to about 750 Mbps of data, which would basically kill your internet plan if you streamed it before it was compressed. The company says it used to be able to deliver content with "an enjoyable quality" at 750 Kbps, but last year it started using a new encoding framework that shrunk that to a mere 270 Kbps. In the real world, that means that if you have a 4GB data plan, you can watch 26 hours of Netflix per month, up from just 10 hours before. These improvements are especially important for developing regions where Netflix is trying to grow its business -- particularly in Africa, Southeast Asia and South America.

Of course, Netflix isn't the only one trying to develop the best streaming tech possible. BAMTech, the startup created by Major League Baseball's Advanced Media and now owned by Disney, takes credit for being the first to stream in 60fps and in 4K. And its technology has such a solid reputation that it powers many of the most popular streaming services, including HBO Go, WWE Network and MLB.tv. Disney will join that list when it launches its own offering in 2019, which is setting up to be a major challenger to Netflix, with cheaper monthly fees, a library full of popular titles and BAMTech's engine under the hood.

The quality of streams counts for only so much, however, and Netflix is well aware of this. As such, the company says its other main focus is to provide the filmmakers it works with the necessary tools "to create content at a high level, then distribute that around the world." Netflix says that most of its original shows and movies are being shot in 6K -- though it's only delivering that picture in 4K right now. Still, not only does this allow it to be ahead of the curve (others, like HBO, stream only in 1080p), but it gives Netflix the ability to future-proof its content.

With six cell towers inside its mobile-testing labs, Netflix can see how thousands of devices respond to different versions of its app.

Netflix has also been a big proponent of high dynamic range, which delivers richer colors and deeper blacks. The company now has more than 300 hours of HDR programming, but it says the challenge is to not make content only look good on high-end TVs. Everything Netflix makes and streams needs to be just as perfect whether you're watching on an iPhone X, a Galaxy S9 or an older, entry-level smartphone.

"We have to present that same experience, that same capability, across a very, very wide range of devices," said Greg Peters, Netflix's chief product officer. "It could be that smart TV that's in your living room -- it's 4K-enabled, it's HDR, it's Dolby Atmos -- or it could be on the mobile phone, on your commute, on a train, where you have limited networking activity but you have a download capability to be able to continue watching." But while the use of smartphones is on the rise, Netflix says that 70 percent of viewing still happens on TVs.

Another way Netflix is helping the people working on its shows is by digitizing production crews, an effort that highlights the company's tech chops and how it's using its resources now that it's also a studio. With an app called Move, Netflix has simplified aspects of the production process, such as crew management and scheduling shoots. The company says Move is only one of its experiments, and it's looking into other ways it can make the job easier for everyone behind the scenes.

“Bringing in these two sides [tech and content] gives us a unique opportunity to fuse the world of Silicon Valley and Hollywood together.”

"One of the things that's really challenging in our space," said Chris Goss, director of studio technology at Netflix, "is the fact that the business of content creation is very, very slow to adapt to new technology." He said the fact that Netflix has been in the tech business for more than a decade is what gives it an advantage over its entertainment competitors. "Bringing in these two sides gives us a unique opportunity to fuse the world of Silicon Valley and Hollywood together," he said. "It comes with a lot of challenges, and one of those challenges is the fact that traditional IT has always been seen as ancillary, not integral to our process, [but] there's all this room for growth and innovation in entertainment."

If there's one message that CEO Reed Hastings, Peters and other executives want to drive home, it's this: Netflix wants to blur the line between Hollywood and Silicon Valley. It doesn't just want to be a content creator or a tech company; it wants to be both. The latter has been Netflix's core advantage up until now, but it'll need to continue innovating to keep its momentum going. Especially as industry giants like Amazon, Disney, HBO and Facebook all try to compete for the same market.

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